EV/EBITDA: How to Use the Enterprise Value to EBITDA Multiple for Valuation
Warren Team
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Key terms
- EBITDAEarnings Before Interest, Taxes, Depreciation, and Amortization, a metric used to evaluate a company's operating performance by removing the effects of financing decisions, tax strategies, and non-cash accounting charges. EBITDA provides a clearer view of a company's core operational profitability and is widely used to compare businesses across industries and capital structures. However, critics note that EBITDA can be misleading because it excludes real costs that affect a company's financial health.
- Loan-to-Value Ratio (LTV)The ratio of a loan amount to the appraised value of the property, expressed as a percentage. Lower LTV ratios typically result in better loan terms and may avoid PMI requirements.
- Book ValueThe net asset value of a company, calculated as total assets minus intangible assets and liabilities. Used to calculate the price-to-book (P/B) ratio for stock valuation.
- Value StockStock trading below its intrinsic value based on fundamentals. Often established companies with low P/E ratios and steady dividends. Contrasts with growth stocks.
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